Commentary

Take Five: Jam Open the Closing Window

This week’s major stories impacting ESG investors, in five easy pieces. 

With the COP27 summit rapidly approaching, there was plenty of evidence to concentrate the minds of policymakers and investors.

Jam open the closing window – The UN Environment Programme’s Emissions Gap Report 2022 was the most sobering of the many pre-COP27 analyses published this week, highlighting the inadequacy of our efforts to tackle the causes of climate change. Current pledges will nudge global warming down from its present 2.8°C course to 2.5°C by 2100, but only “urgent system-wide transformation” can deliver needed GHG emission cuts by 2030. As well as echoing UN Climate Change’s assessment that nationally determined contributions needed significant strengthening, the UNEP report said the financial system “must overcome internal and external constraints” to become a critical enabler, putting the annual investment needed for a global transition to a low-carbon economy at US$4-6 trillion. While investors are improving their understanding of transition investments, finance flows are not yet finding their mark. In an accompanying commentary, UNEP Executive Director Inger Andersen said: “I urge every investor, public and private, to put their capital towards a net zero world. This is how we can jam open the closing window for climate action and start to change our world for the better.”

Road to somewhere – Alongside an analysis of the “first global energy crisis”, the International Energy Agency’s World Energy Outlook 2022 included an update of its Net Zero by 2050 roadmap for energy transition. Taking account both of the Ukraine crisis and the post-pandemic rebound in energy demand, the IEA said its net zero pathway is “narrow but achievable”, requiring policymakers to drive a demand-led transition to slash fossil fuel use by 2030. This involves encouraging adoption of electric vehicles, new energy efficiencies in industry and buildings, growing deployment of solar and wind, and scaling up production of key materials and technologies. “The path to success requires policymakers to do much more to provide signals on the demand side,” it said, highlighting also rising employment and training needs. Earlier, the Institute for Sustainable Development called for “more and better support” by governments for renewables deployment.

Rebel alliance – Having been asked by GFANZ to read NZBA Chair Tracey McDermott’s open letter last week as nothing more than a restatement of existing policy and governance, it was interesting to detect the shift of tone on Race to Zero (RtZ) guidelines in the alliance’s 2022 progress report, released yesterday. In short, GFANZ now says member groups will “take note” of the RtZ guidance, but are not bound by it. GFANZ members, including the Net Zero Asset Owner Alliance, will remain within the UN-backed RtZ campaign for now, but the future path to net zero of financial service providers, especially banks, poses as many questions for RtZ as it does for the seven increasingly autonomous sub-groupings of the alliance, not to mention its principals and advisory panel. It also places considerable store by the ability of the recently announced Net-Zero Data Public Utility to provide transparency on transition progress.

Green Rishi – Twelve months ago, then-Chancellor Rishi Sunak took to the stage in Glasgow to outline an ambitious vision of Britain as the world’s foremost net zero financial centre. Twelve tumultuous months later, the UK premier has a chance to prove that vision was not governmental greenwashing. Sacking fracker-in-chief Jacob Rees-Mogg was a start, and new green fund labelling rules were largely welcomed. But much else is needed, with an in-tray including its green taxonomy consultation, an update of its Green Finance Strategy, and a review of the UK’s Net Zero Strategy for starters. Signals are mixed so far with the demotion from cabinet of the climate change minister and COP26 President Alok Sharma, and non-attendance of COP27, on grounds of an economic crisis. With Shell announcing further extreme profits, Sunak could be tempted to burnish green credentials and fill a hole in UK finances with an extension of his so far timid windfall tax.

Bolsonaro and bust – Brazilian voters will vote this weekend to decide whether to back President Jair Bolsonaro’s bet on beef to drive short-term economic prosperity at the expense of the long-term term sustainability of the Amazon. A new Planet Tracker report underlines the risks, saying that climate change driven by deforestation could put more than 39% of Brazil’s exports at risk, including soy beans, while droughts could curtail the supply of hydropower – on which Brazil is dependent for 66% of its electricity. With the signing of the Global Biodiversity Framework at hand, and investors, businesses, consumers turning toward alternative proteins, Bolsonaro’s path seems a high-stakes gamble.

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